NHS Pension Scheme Planning How Changes Affect Retirement Planning

Transcription

1 NHS Pension Scheme Planning How Changes Affect Retirement Planning Hilary Salt FIA 19 November 2014

2 2 Planning retirement NHS Pension Scheme Annual Allowance Member choices Retirement planning

3 Overview of NHSPS benefits Section/Scheme Structure Accrual Normal Pension Age Indexation in active service 1995 Section Final Salary 1/80 th pension + 3/80 th cash 60 Final Salary 2008 Section Final Salary 1/60 th 65 Final Salary 2015 Scheme CARE 1/54 th State Pension Age CPI + 1.5% 2008 and 2015: Exchange pension for cash on retirement 12 cash for 1 annual pension 3

4 State Pension Age 4

5 NHSPS Transitional Protection <10 years to NPA Full protection 10-13½ years to NPA Transitional protection For every month of age beyond 10 years of current NPA, lose 2 months of protection >13½ years to NPA Accrued rights protected NPA 55 (special classes) 60 (1995 section) 65 (2008 section) Old scheme service New scheme service 5

6 Impact of the new scheme Calculators for estimating future benefits and seeing changes to benefits under the new scheme can be found at: 6

7 7 Tiered Member Contribution Rates In force 2014/15 Draft regulations 2015/16 to 2018/19 Long term Tier Whole-Time Equivalent Pensionable Earnings Rate Whole-Time Equivalent Pensionable Pay Rate 2019/20 onwards 1 0 to 15, % 0 to 15, % 2 15,432 to 21, % 15,432 to 21, % 3 21,388 to 26, % 21,478 to 26, % 4 26,824 to 49, % 26,824 to 47, % 5 49,473 to 70, % 47,846 to 70, % 6 70,631 to 111, % 70,631 to 111, % 7 111,377 and over 14.5% 111,377 and over 14.5%?

8 Employer Cost Cap 2012 valuation used to determine employer contribution and cost cap: Employer contribution rate: 14.3%, Employer cost cap: 11.6% Cost cap intended to provide protection to the taxpayer and to cover unforeseen events and trends that significantly increase scheme costs Action will be needed if the costs described above breach a 2% margin either side of the cost cap (Scheme Advisory Board to advise) e.g. change future benefit accrual and/or member contributions Costs brought back to the cost cap Costs increase by 2.1% Cost floor 9.6% Cost cap 11.6% Cost ceiling 13.6% 8

9 Annual Allowance A limit on the pension savings an individual can build up in any one year Above which a tax charge may apply Covers all contributions to DB and DC schemes Unused allowances from last 3 years can offset future years : 255, : 50, : 40,000 9

10 Annual Allowance DB Real increase in value over the year DC All contributions paid over the year VS 40,000 No past service 1 / , = 40,000 With 20 years past service & 3% real salary increase ( ) / 60 91, = 40,040 10

11 How to pay the Annual Allowance Charge Taxed at highest marginal rate on amount over the Annual Allowance SELF-ASSESSMENT TAX RETURN SCHEME PAYS if charge > 2,000 Via HMRC Charge paid at retirement (or if transfers out), interest at CPI + 3% pa Member benefits reduced Dependant benefits unaffected 11

12 Section: Opting out of protection What: A one-off chance to opt-out of protection Who: 2008 Section members with full or tapered protection (i.e. born before 1 September 1960) Why: 2015 Scheme benefits (1/54 th accrual, SPA) may be more valuable than 2008 Section benefits (1/60 th accrual, NPA 65) When: Shortly after 1 April 2015

13 Section: Choice 2 What: A second chance to transfer all 1995 Section membership to the 2008 Section Who: 1995 Section members with tapered or no protection (i.e. born after 1 April 1962) Why: Transfer to the 2008 Section may now be more attractive because people may retire later, and because if they draw 1995 Section benefits from 60 they won t be able to stay in the 2015 Scheme When: By 16 March 2015

14 Options to pay more 1. Early retirement reduction buy out Pay extra to reduce some of the early retirement reduction that would apply on retiring before NPA 2. Additional Pension ( AP ) Buy more pension in multiples of 250 per year 3. Additional Voluntary Contributions (AVCs) Pay extra into a money purchase fund 14

15 Planning for retirement Having enough money to stop working How much will you need? 50% to 75% of your current salary? What is right for you? Think this through with your partner? Spending might reduce Spending might increase No mortgage Holidays Children finished university Leisure Don t have to save for retirement Heating No National Insurance to pay Long term care (you or parents) 15

16 16 Planning for retirement What money are you building up? NHS Pension Scheme 1995 / 2008 / 2015 benefits AP and AVCs Extra pension and/or extra DC State pensions Single Tier Pension from April 2016 Worth around 7,500 per year Other pensions Other savings From previous employments Personal pensions Shares, cash savings, ISAs Other sources Inheritance, buy-to-let, own home How does this affect the choices members make?

17 Questions 17